20170521w_biz_rockwell

United Technologies is planning to break itself into three independent companies now that it has sealed its acquisition of aviation electronics maker Rockwell Collins. Above, dummies await their turn testing aircraft seating and restraint systems.

The completion of the $30 billion sale of Rockwell Collins Inc. to United Technologies Corp. has been accompanied by an expected splitting of UTC into three separate companies.

UTC announced late Monday the closure of the Rockwell purchase — three days after the companies gained final Chinese regulatory approval. The deal was announced in September 2017.

Rockwell has about 1,500 employees at the Winston-Salem operational hub that it acquired in April 2017 from B/E Aerospace Inc. Rockwell had eliminated about 100 jobs as part of shifting certain production to facilities in the Philippines.

“The finalization of the sale should add more stability to the operations throughout their system,” Winston-Salem Mayor Allen Joines said Tuesday. “We look forward to working with the new leadership to ensure a smooth transition.”

UTC will retain the Pratt & Whitney aerospace business, plus add the Rockwell Collins operations

The spin-off involves: Otis, the world’s leading manufacturer of elevators, escalators and moving walkways; and Carrier, a global provider of HVAC, refrigeration, building automation, fire safety and security products.

The companies expect the spin-offs to be completed in 2020.

UTC had been under significant shareholder pressures for several months, particularly from billionaire hedge-fund activists Daniel Loeb and Bill Ackman, to create three independent companies to generate higher revenue and profit levels.

Loeb’s Third Point firm declined to comment Tuesday.

However, investors’ initial reaction to the spin-offs was to send UTC’s share price down as much at 6.8 percent before closing off 4.1 percent, or by $5.30, to $122.68.

“Our decision to separate United Technologies is a pivotal moment in our history and will best position each independent company to drive sustained growth, lead its industry in innovation and customer focus, and maximize value creation,” UTC Chairman and Chief Executive Gregory Hayes said in a statement.

Hayes will remain in charge of UTC. Bloomberg News reported March 19 that Hayes said he plans to retire upon the full integration of Rockwell, which is projected to take three to five years.

“We think the moves could unlock value, as the value of diversification brought by these businesses over the past few years has been more than negatively offset by the lack of an ability of the market and investors to value the companies in a way that makes sense,” CFRA analyst Jim Corridore said.

“Aerospace companies tend to trade at much higher valuation multiples than elevator or HVAC companies.”

UTC and Rockwell re-affirmed their plans to create Collins Aerospace Inc. from the merger. Rockwell’s top executive, Kelly Ortberg, will serve as Collins Aerospace’s chief executive. Ortberg qualifies for a change-in-control package worth $30 million.

Winston-Salem retains the aircraft-interiors division, led by Dave Nieuwsma. The division produces aircraft seating, evacuation systems, lighting, de-icing products, monuments/structures, aircraft galleys, galley inserts, oxygen systems, passenger service units and lavatories, water systems, veneers and life rafts.

Charlotte retains the mechanical systems division. Altogether, UTC has about 2,500 employees in North Carolina.

On May 23, UTC projected adding 35,000 U.S. jobs as part of a five-year expansion initiative, along with spending more than $6 billion on capital investments and $9 billion on research and development. There are plans to expand its North Carolina workforce by about 1,500 to 4,000 employees.

UTC said Collins Aerospace and Pratt & Whitney would have combined for $39 billion in sales in 2017. Collins Aerospace will have about 70,000 employees worldwide

Meanwhile, Otis had $12.3 billion in 2017 sales, while Carrier had $17.8 billion.

The three companies together are expected to pay a quarterly dividend of at least 73.5 cents per share. Until the spin-offs are completed, UTC plans to pay that same amount.

UTC updated its fiscal 2018 outlook to include Rockwell revenue. Sales projections were raised by $500 million in each end of the range to $64.5 billion to $65 billion. Adjusted earnings per share dropped by 10 cents on each end to $7.10 to $7.20.

The deal gained conditional U.S. Justice Department approval Oct. 2. It initially was projected for an early July closing. The transaction required the approval of 17 international regulatory agencies. UTC is taking on $7 billion in Rockwell debt as part of the deal.

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rcraver@wsjournal.com 336-727-7376 @rcraverWSJ

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